CBS Creditor Rights & Negotiations 2 — Questions and Answers
Question 1: A secured creditor holds a lien on a debtor's commercial building worth $500,000 with a $600,000 claim. What is the creditor's unsecured deficiency claim?
- $100,000 (Correct answer)
- $500,000
- $600,000
- $0 because liens survive bankruptcy
Correct answer: $100,000
The deficiency claim equals the amount by which the secured claim exceeds the collateral value: $600,000 - $500,000 = $100,000.
Question 2: Under 11 U.S.C. § 362(d)(2), a secured creditor may obtain relief from the automatic stay if the debtor has no equity in the property AND:
- The property is not necessary for an effective reorganization (Correct answer)
- The creditor's lien was perfected before filing
- The debtor has not filed a reorganization plan
- The property generates no income
Correct answer: The property is not necessary for an effective reorganization
Section 362(d)(2) requires both lack of equity and that the property is not necessary for an effective reorganization.
Question 3: In a Chapter 11 cramdown, what is the minimum interest rate a secured creditor must receive on its allowed secured claim?
- The contract rate stated in the original loan
- A rate reflecting current market conditions for comparable loans (Correct answer)
- The federal funds rate plus 2%
- The prime rate minus 1%
Correct answer: A rate reflecting current market conditions for comparable loans
Under Till v. SCS Credit Corp., the cramdown rate is the prime rate plus a risk adjustment reflecting current market conditions.
Question 4: A creditor who received a payment of $15,000 from an insolvent debtor 75 days before bankruptcy files a preference avoidance claim. What is the most likely outcome?
- The payment is avoidable as a preference under § 547
- The payment is protected because it occurred outside the 90-day window (Correct answer)
- The payment is protected by the ordinary course of business exception
- The payment is not avoidable because it was less than $25,000
Correct answer: The payment is protected because it occurred outside the 90-day window
The 90-day preference period under § 547(b)(4)(A) means a payment 75 days before filing falls outside the lookback window for non-insiders.
Question 5: Which type of creditor holds a claim that is NOT dischargeable in a Chapter 7 case under § 523(a)(2)?
- A creditor holding a claim arising from fraud (Correct answer)
- A creditor with a properly perfected security interest
- A creditor whose claim arises from a breach of contract
- A creditor holding a general unsecured trade claim
Correct answer: A creditor holding a claim arising from fraud
Section 523(a)(2) excepts from discharge debts obtained by false pretenses, fraud, or misrepresentation.
Question 6: A Chapter 11 plan provides that Class 3 unsecured creditors will receive 30 cents on the dollar over five years. Class 3 votes to reject. For cramdown, the plan must not discriminate unfairly and must be:
- Fair and equitable (Correct answer)
- Confirmed by at least one impaired class
- Approved by the U.S. Trustee
- Supported by the creditors' committee
Correct answer: Fair and equitable
Under § 1129(b), a plan may be confirmed over a rejecting class if it does not discriminate unfairly and is fair and equitable with respect to that class.
Question 7: What is the effect of a creditor filing a proof of claim in a Chapter 7 case after the bar date in a no-asset case that later becomes an asset case?
- The claim is disallowed as untimely and the creditor receives nothing
- The creditor may file a late claim and still participate in distribution (Correct answer)
- The claim is automatically allowed as timely because the bar date was not meaningful at filing
- The court must extend the bar date for all creditors
Correct answer: The creditor may file a late claim and still participate in distribution
In no-asset cases that convert to asset cases, the court typically sets a new bar date giving creditors an opportunity to file late claims.
CBS Creditor Rights & Negotiations 2
A secured creditor holds a lien on a debtor's commercial building worth $500,000 with a $600,000 claim.
What is the creditor's unsecured deficiency claim?